TIPS Preparing for Family Financial Responsibilities Across the Generations

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1 TIPS Preparing for Family Financial Responsibilities Across the Generations Overview P L A N N I N G T I P S Preparing for Family Financial Responsibilities Across the Generations In January 2012, the MetLife Mature Market Institute released Multi-Generational Views on Family Financial Obligations: A MetLife Survey of Baby Boomers and Members of Generations X and Y. This survey focused on areas of financial responsibility among family members, and looked across three generations to identify what mattered most to them. While this did reveal some differences in priorities and planning, these differences had more to do with a person's lifestage rather than their specific generation. People across all generations want to help provide for their family members in certain areas, such as college costs, ensuring adequate finances for dependents in the event of death, or helping a family member in need. And they want to do this out of love and caring, not as a financial mandate or obligation. Wanting to, however, doesn't always translate into action. This tip sheet provides 10 steps that can be taken to help make sure you and your family are prepared financially for the future you envision. Key Considerations 1. Begin with an understanding of where you are in your life. There is a saying that the first step to change and success is understanding. This holds true in all areas of our lives, whether we are creating a new path to get us where we want to go, or we are merely looking to ensure our path s success. By thoroughly examining your current financial situation and obligations, in combination with your long-term goals and responsibilities, you will have a starting point to help direct you. Examine your current net worth along with existing debt, and look at the following: How many people are financially dependent on you, and to what level? What does that translate into in terms of years and dollar amount? Do you have known future debts or expenses, such as college funding or caregiving? Have you considered potential unknowns or challenges that could throw you off track? Each person s situation is unique, and deserves to be treated as such. By understanding your current state, you can begin to develop a plan that covers all aspects of your goals and responsibilities.

2 2. Start with taking care of your own needs first. In an emergency, please secure your oxygen mask first before helping others. Every flight safety advisory begins with this advice, and it is advice that transcends oxygen masks. In general, we can be of assistance to others when we have taken good care of ourselves. In the multi-generational study, respondents across all generations placed a strong value on being financially independent in old age and not being a burden on their children. At the same time, they universally felt a strong sense of responsibility to protect an elderly parent who is not as independent as they themselves strive to be. One of the ways you can help yourself first is by paying down debt and putting in place a financial plan that covers your needs in the future, allows for emergency funds, and includes protection from potential challenges, such as no longer being able to work due to an illness or injury. There are many financial products and solutions out there, some of which may be offered through your employer, that will allow you to empower yourself and give you independence and freedom of choice for your future. 3. Reassess as you go along. Our lives are dynamic and responsibilities and priorities change. As changes occur, such as major life events, it s a good time to reassess what you ve put in place financially and adapt your plan as needed. Based on the survey findings, even though most Americans feel a responsibility to ensure that their spouses or children have enough money if they were to die unexpectedly, one in eight has no life insurance, with almost half acknowledging they should have this coverage. Of those with insurance, over 40% admit they do not have or are unsure if they have enough coverage for their family obligations. So while there is some awareness of a need, there is also inaction. There are many tools available online and through financial services companies and financial advisors that can help you calculate what your coverage and savings needs are based on your specific responsibilities and goals. These can also provide you with solutions and products that best suit your family needs and what you want for the future.

3 4. Don t just give more give for. We love to give to those we love. In fact, this study found that the desire to give more to children and grandchildren is felt universally across all generations. Many parents and grandparents stated that they give gifts without a specific goal or objective, and then hope that those gifts are used for practical purposes. Many grandparents also suggested that protecting and ensuring financial security for their grandchildren is an important and meaningful gift. Parents and grandparents feel that they can provide practical, purposeful gifts, like money to help pay for education, books, furniture for a new house, or a skill like a young child s sports training or music lessons. One idea is to investigate how to finance gifts that help the younger people in their lives with something important and enduring for everyone. Another idea is grandparents helping their adult children through support for basic financial protection that will help take care of the grandchildren if needed. Give with a goal in mind. 5. Love is the driving force partner that with practical solutions. A popular song from the 1980s asked an important question, What s Love Got to Do with It? the quick answer is, A lot! when it comes to families financially supporting and caring for each other, and when responding with consideration and affection. Every generation responds and connects through a sense of caring, responsibility and love, rather than as a familial mandate or contract, or mere obligation. These strong emotional ties and desire to help should be supplemented by ensuring adequate financial resources. Practical solutions are available in the form of financial protection and savings products that can ensure you and your family are provided for, such as life insurance, disability insurance, and retirement savings vehicles, whether you are providing for a spouse, a child, or even a grandchild. 6. Plan for unexpected setbacks. It is vital to save, plan ahead, and anticipate potential setbacks because the unexpected does happen. You can protect yourself and your family by planning ahead against a range of potential circumstances with the right financial products. A comprehensive plan includes more than only savings, or only insurance products. Be sure you are covered and your family is financially protected from a range of circumstances, including death, critical illness, permanent disability, or loss of earnings if you are unable to work.

4 For many, this sounds like a lot to put in place. There are, however, products that allow you to begin with a starter plan that you can add to over time. For most of us, getting started is often the hardest part, however once we begin, we realize it was much simpler than expected. 7. Once your essentials are covered what do you add? Having a basic financial plan is a great starting point. This includes having a financial reserve, or emergency fund of at least six months income, paying off high interest rate credit card debt, working from a household budget that includes putting away savings for retirement, and paying for basic family income protection such as life and disability insurance. Make sure you don t forget how important it is to have a will. This will protect your family from the costs and delays of probate court and make sure your assets are distributed as you wish them to be. This will also name guardians for your children or any dependents you have. Also consider putting a trust in place they are not just for the wealthy. A trust allows you to put conditions around how and when your assets will be distributed and can help reduce estate and gift taxes. Even if you are young and healthy now, it is also important to have legal documents in place to ensure that your wishes regarding health care and finances are honored should you at some point in the future become incapacitated and unable to make them known yourself. A durable power of attorney allows you to appoint someone you trust to make decisions on your behalf related to health care and/or finances depending on what you specify in the document. A living will allows you to indicate the types of treatment and life-sustaining measures you would want or not want in particular medical circumstances. It can relieve your family of the burden of decision making and serve as a road map for the person you selected as your durable power of attorney for health care. 8. Make your intentions a family conversation, not a family secret! Although it s Estate Planning 101, most families are probably not talking about inheritance planning and final wishes, and they need to. Many Americans do not consider leaving an inheritance to be a family responsibility, and it is never safe for children or grandchildren to assume that funds will be there at all, and if they do exist, to whom the money will be directed. If leaving an inheritance is important to you, then it has to be planned for. This is especially true for Boomers nearing retirement, because legacy planning needs to be incorporated into general plans for spending and saving in retirement. Communicating to family and a financial professional

5 about reasons for leaving a legacy or not is important for everyone s financial planning efforts. Finally, having adequate financial reserves, spending plans for a potentially long lifetime, and protection for the unexpected such as a long-term care illness will help to ensure that you remain financially independent as an older adult. 9. Access the heart in the home. Housing decisions inevitably impact financial planning at all life stages, and there are key conversations that families should be having with one another. For example, there has been a significant increase in multi-generational households in the United States as the economy has struggled, with more households than ever before being head up by the grandparent. A good starting point is to discuss what would happen if a need were to arise for adult children to move in with parents, or if a parent were to need help and have to move into the child s home. Think about planning for long-term care needs and how these needs could be financed. Talk about expectations and desired plans, and then discuss the what if alternatives. Most family members in need will find the door wide open. 10. Know how much you need. Life insurance is a basic fundamental need for anyone with dependents and financial responsibilities. As mentioned earlier, the vast majority of Americans feel that they have an obligation to make sure spouses and children are taken care of in the event of an unexpected death, yet most admit they don t have enough insurance, and for many, none at all. It is important to base coverage on family goals and needs. For younger generations, children are a primary concern. Being able to pay off a mortgage, afford daycare, pay off debt, see a child through college, or ensure drastic lifestyle changes won t have to be made in the event of an unexpected death are primary concerns. For Baby Boomers with grown children, a primary concern is making sure a spouse is taken care of, or that they can help provide for their grandchildren. Bottom line, when considering the appropriate amount of basic financial protection, it is important to take into account the long-term financial impact on family, and make sure those areas are covered.

6 For More Information Download the survey, Multi-Generational Views on Family Financial Obligations at The MetLife Mature Market Institute Celebrating its 15-year anniversary in 2012, the MetLife Mature Market Institute is Metropolitan Life Insurance Company s (MetLife) center of expertise in aging, longevity and the generations and is a recognized thought leader by business, the media, opinion leaders and the public. The Institute s groundbreaking research, insights, strategic partnerships and consumer education expand the knowledge and choices for those in, approaching or working with the mature market. The Institute supports MetLife s long-standing commitment to identifying emerging issues and innovative solutions for the challenges of life. MetLife, Inc. is a leading global provider of insurance, annuities and employee benefit programs, serving 90 million customers. Through its subsidiaries and affiliates, MetLife holds leading market positions in the United States, Japan, Latin America, Asia, Europe, the Middle East and Africa. For more information, please visit: Insurance products: Are Not FDIC Insured Are Not a Condition of Any Bank Service Are Not a Deposit Product Offer No Bank/Affiliate Guarantee Insurance Contracts Are An Obligation Of The Issuing Insurance Company MMI00318(0712) 2012 Metropolitan Life Insurance Company L [exp0515]

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